The Debt Fix

“Be joyful in hope, patient in affliction, faithful in prayer.” – Romans 12:12

For the last couple of months we’ve been going over a step-by-step plan for getting out of debt and staying out of debt forever.  If you have debt, you probably didn’t get into it overnight.  Getting out of debt won’t be an overnight process either.  But please take encouragement from this month’s verse.  Be joyful, knowing that you CAN get out of debt.  Be patient with the process.  And, of course, bathe your journey in prayer.

While getting out of debt may take some time, the steps that follow — Ask, Fix, Roll, and Accelerate – are designed to quicken your pace.

Once you’ve listed all of your debts, their current balance, minimum required payment, and interest rates, call the credit card companies to ASK for a lower interest rate.  Over half of all people who make such a request are successful.  You stand a greater chance of success if you have been a long-time customer, have paid your bills on time, and have an offer from another company for a lower rate that you can mention.  If you have an $1,800 balance on a card charging 18 percent interest, getting the rate lowered to 14 percent will cut your pay-off period by nearly 4 years and will save you almost $1,000 in interest.  And that’s if you’re making just the minimum payments each month.

The next step is to FIX your payments.  If you do not charge anything else and you make the minimum required payment each month, that required payment will decrease a little each month.  That’s because the payment is based on a percentage of the balance.  As the balance declines, so does the minimum required payment.  Paying this declining minimum will keep you in debt for a very long time.  But if you fix the payment on this month’s minimum, continuing to pay that amount even as the required minimum declines, you’ll be out of debt much faster.  Sticking with our $1,800 balance example, making the declining minimum payment (assuming a 14 percent interest rate and a required payment of 2.5 percent of the balance) will take you nearly 14 years to get out of debt.  Fixing your payment will cut that time by over 9 years.

As each debt is wiped out, ROLL the full amount you were paying on it into the next lowest balance debt.  That’ll add some nice momentum to your process.

The last step for this month is to ACCELERATE the roll.  That means finding an extra $10 or $25 or $50 to add to your fixed minimum payment.  Apply it to your lowest balance debt.  Then, once that one is gone, roll the full amount into the next lowest balance debt.

There’s one important caveat to this step: make sure you have an emergency fund equivalent to one month’s living expenses before applying an accelerator to your debts.  If you don’t, use the accelerator to build that savings account first.

There are more details about this process, along with recommended online calculators and encouraging stories, in my new book, workbook, and small group discussion guide.

Next month: Staying the course.


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